Michael Melby presented his in-depth investment thesis on Gulf Island Fabrication (Nasdaq: GIFI) at Best Ideas 2017.
Gulf Island Fabrication fabricates specialized structures and vessels for customers in the offshore oil and gas and marine industries. The company conducts operations in three segments: fabrication, shipyards, and services. Gulf Island believes it has the largest group of fabrication facilities serving the Gulf of Mexico market. The company’s owned asset base, including land, buildings, and equipment, provides Gulf Island with the capabilities to compete effectively on offshore fabrication projects and represents a high barrier of entry to potential competitors. Gulf Island has cut costs following the recent decline in energy prices and is expected to continue to generate positive adjusted EBITDA and FCF despite the unfavorable market environment. The company is pursuing major contracts outside of oil and gas, including river cruise ship construction, offshore wind platforms, and LNG-related projects that could significantly improve results even without an increase in energy prices. Gulf Island recently completed the opportunistic acquisition of LEEVAC Shipyards. The company acquired three shipyards and significant project-design capabilities and actually received an upfront cash payment to acquire the assets. In addition to a large base of owned assets, Gulf Island has substantial liquidity, with $56 million in cash on the balance sheet and no debt, providing financial flexibility to withstand an extended downturn in the energy markets. Gulf Island has filed a lawsuit to collect over $30 million in client change orders. The market quotation is attractive, with the stock trading at 0.66x tangible book value and under 4.0x trough EBITDA. Michael has visited each of the company’s locations and came away impressed with the company’s extensive base of owned assets and unique capabilities.
About the instructor:
Michael Melby is the founder and portfolio manager of Gate City Capital Management, a micro-cap value focused investment firm. Before starting Gate City Capital, Michael worked as a research analyst at Crystal Rock Capital Management where he covered the consumer, restaurant, retail, and gaming sectors. Michael previously worked at Deutsche Bank Securities in their Debt Capital Markets group and at the University of Notre Dame Investment Office where he focused on natural resources, fixed income, and risk management. Michael earned an MBA from the University of Chicago Booth School of Business where he graduated with Honors and a BBA in Finance from the University of Notre Dame where he graduated Summa Cum Laude. Michael is a CFA Charterholder and has earned the Financial Risk Manager designation.
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